Shareholders, above all.
That appears to be the thinking of the coal and utility industries, at least according to NorthWestern Energy, Montana’s largest electric utility. Northwestern has been in the news recently for trying to persuade the Montana Public Service Commission to let it make its customers pay somewhere between $8 million and $11 million for the “replacement power” it bought after the generator at the jointly-owned Colstrip 4 coal-fired power plant caught fire, forcing the plant offline for six months in 2013.
NorthWestern’s position on who is responsible for paying those replacement-power costs was on full display a couple of weeks ago in Helena, where I testified in a commission hearing on the case. The takeaway as far as I could tell was that NorthWestern cares a lot more about its shareholders than its customers. And it serves as a reminder that the much of the rest of the industry agrees with them.
I say this for a couple of reasons.
- First, NorthWestern argued that it was just following industry standards when it signed equipment contracts that excuse vendors from liability for replacement-power costs when vendor negligence causes an accident or otherwise shuts down a power plant.
- Second, the company said not buying outage insurance to pay for replacement power costs is just the way the business works. Ratepayers are typically left unprotected, holding the bag and having to pay all of the millions of dollars of replacement-power costs when a vendor screws up and causes a fire or an accident.
A little research shows that, unlike NorthWestern Energy, some utilities actually have sued vendors for accidents or screw-ups that led to extended power plant outages. XcelEnergy sued GE over a catastrophic turbine failure at the coal-fired Sherco plant in Minnesota, and Xcel sought recovery of part or all of the $65 million in replacement-power costs its customers paid during the plant’s 22-month outage. Xcel has also sued on the grounds that GE fraudulently concealed a known equipment defect for years.
And the fact is that some utilities—like Public Service of New Hampshire (now Eversource) and Eastern Kentucky Power Cooperative—indeed do, at times, protect their customers by purchasing outage insurance.
In other words, while most of the industry might be fine with letting equipment vendors off the hook for replacement power costs and with not protecting ratepayers, some utilities sometimes do appear to look out for their customers by holding equipment vendors accountable and by taking out insurance. NorthWestern is not one of them.
David Schlissel is IEEFA’s director of resource planning analysis.
